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UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 10-K

Commission File No. 0-20847

GENESEE & WYOMING INC.
(Exact name of registrant as specified in its charter)

Securities registered pursuant to Section 12(b) of the Act:

Securities registered pursuant to Section 12(g) of the Act:

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes       X         No            

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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of the Regulations S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this form 10-K or any amendment to this Form 10-K. [ ]

Aggregate market value of Class A Common Stock and Class B Common Stock held by non-affiliates based on closing price on March 20, 2002: $271,267,740.

Shares of common stock outstanding as of the close of business on March 21, 2002:

Documents incorporated by reference and the Part of the Form 10-K into which they are incorporated are listed hereunder.

The remainder of this page is intentionally left blank.

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PART I

ITEM 1. BUSINESS.

     Genesee & Wyoming Inc. (the Registrant or the Company) is a holding company whose subsidiaries and unconsolidated affiliates own and operate short line and regional freight railroads and provide related rail services in North America, South America and Australia. The Company, through its U.S. industrial switching subsidiary, also provides railroad switching and related services to United States industrial companies with extensive railroad facilities within their complexes. The Company’s predecessor, Genesee and Wyoming Railroad Company, was founded in 1899 by E.L. Fuller and his partners. In 1977, when Mortimer B. Fuller, III purchased a controlling interest in the Company and became its Chief Executive Officer, the Company was dependent on a single commodity, salt, produced by a single customer. At that time, the Company generated $3.9 million in operating revenues over its 14 miles of track. In 1978, under the leadership of Mr. Fuller, the Company began a strategy of growth by acquisition that broadened its sources of rail and rail-related revenues. Initial expansion was into the railcar leasing business which was followed by 18 rail line acquisitions in the United States. Significant US acquisitions have included the Rochester & Southern Railroad, Inc. (1986), Louisiana & Delta Railroad, Inc. (1987), Buffalo & Pittsburgh Railroad, Inc. (1988), Allegheny & Eastern Railroad, Inc. (1992), Willamette & Pacific Railroad, Inc. (1993), Portland & Western Railroad, Inc. (1995), Illinois & Midland Railroad, Inc. (1996), Pittsburg & Shawmut Railroad, Inc. (1996), the rail and industrial switching business of Rail Link, Inc. (1996), and most recently, the South Buffalo Railway in October 2001, and Emons Transportation Group, Inc. in February 2002.

     The Company’s domestic growth has been complemented by expansion into privatizing rail markets worldwide. For example, in Australia:

. the Company was awarded a concession by the South Australian government to operate a railroad that provides freight services in South Australia and formed a wholly owned subsidiary, Australia Southern Railroad, or ASR, to operate that concession in 1997;

. the Company acquired the right to operate Broken Hill Proprietary Co. Ltd’s iron ore supply rail-lines and in-plant rail operations in Whyalla, South Australia in 1999;

. the Company, through its recently formed joint venture, Australian Railroad Group Pty. Ltd. (ARG), completed the acquisition of Westrail Freight from the government of Western Australia in December 2000. ARG is a joint venture owned 50% by the Company and 50% by Wesfarmers Limited, a public corporation based in Perth, Western Australia. Westrail Freight was composed of the freight operations of the formerly state-owned railroad of Western Australia.

. the Company acquired a 2.6% equity interest in the Asia Pacific Transport Consortium (APTC), a consortium that obtained the necessary financing to build, own, and operate an 885-mile rail line from Alice Springs to Darwin in the Northern Territory of Australia. The Company contributed its interest in APTC to ARG in April 2001.

     As a result of these acquisitions, and extensions of service to Melbourne and Sydney on the interstate system, ARG is the second largest private freight rail operator in Australia.

     In 1997, the Company formed Genesee Rail-One Inc., a joint-venture for Canadian rail acquisitions, which operates two railroads in Canada. In April 1999, the Company increased its ownership interest in Genesee Rail-One to 95% and began consolidating its operating results, and during the second quarter of 2000, the Company purchased the remaining 5% interest.

     In July 1998, the Company began serving as the operator of a mineral railroad in northern Mexico. The railroad, known as Linea Coahuila Durango, is a concession awarded by the Mexican government to two Mexican industrial firms. Late in 1999, the Company changed its relationship with Linea Coahuila to that of being a provider of technical assistance so that the Company’s management could focus on its new Mexican operation, Compania de Ferrocarriles Chiapas-Mayab, S.A. de C.V. (FCCM), a then wholly owned subsidiary. In August 1999, FCCM, was awarded a concession to operate two railways, the Chiapas line and the Mayab line, which are connected by trackage rights on the transisthmus rail line. FCCM began operations on September 1, 1999. On December 7, 2000, in conjunction with the refinancing of FCCM and its parent company, GW Servicios, S.A. de C.V. (Servicios), the International Finance Corporation invested $1.9 million of equity for a 12.7% indirect interest in FCCM, through its parent company, Servicios. The Company contributed an additional $13.1 million and maintains an 87.3% indirect ownership in FCCM.

     In November 2000, the Company acquired an indirect 21.9% equity interest in Empresa Ferroviaria Oriental, S.A. increasing its stake in Oriental to 22.6%. Oriental is a railroad serving eastern Bolivia and connecting to railroads in Argentina and Brazil. The Company previously acquired a 0.7% indirect interest in Oriental on September 30, 1999 through its 47.5% ownership interest in Latin American Rail LLC. On July 24, 2001, the Company increased its indirect equity interest in Oriental to 22.9% with an additional investment of $246,000.

INDUSTRY OVERVIEW

     According to the Association of American Railroads Railroad Facts 2000 Edition, the Company believes that there are 555 railroads in the United States operating roughly 170,000 miles of track. U.S. railroads are segmented into one of three categories based on the amount of their revenues. Class I railroads, those with over $258.5 million in revenues, represent over 90% of total rail revenues. Regional and short-line railroads operate approximately 50,000 miles of track in the United States. The primary function of these smaller railroads is to provide feeder traffic to the Class I carriers. In terms of revenue, regional and short-line railroads combined account for approximately 9% of total railroad revenue.

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     The following table shows the breakdown of railroads by classification.

Source: Association of American Railroads Railroad Facts 2000 Edition.

     The railroad industry in the United States has undergone significant change since the passage of the Staggers Rail Act of 1980, which deregulated the pricing and types of services provided by railroads. Following the Staggers Act, Class I railroads in the United States and Canada took steps to improve profitability and recapture market share. In furtherance of that goal, Class I railroads focused their management and capital resources on their long-haul core systems, and some of them sold branch lines to smaller and more cost-efficient rail operators willing to commit the resources necessary to meet the needs of the shippers located on these lines. Divestment of branch lines enabled Class I carriers to minimize incremental capital expenditures, concentrate traffic density, improve operating efficiency, and avoid traffic losses associated with rail line abandonment.

     The efforts of Class I carriers to increase efficiency also led to an increase in merger activity among long-haul railroads, such as, the acquisition of Consolidated Rail Corporation by Norfolk Southern Corp. and CSX Transportation, Inc., in 1999. Such consolidations present both risk and opportunity for the Company. On one hand, service failures resulting from poor system integration negatively impact the Company’s revenues and operating expenses. On the other hand, as efficiencies are achieved by the mergers, the Company benefits from a more fluid and efficient rail system. The Surface Transportation Board issued a 15-month moratorium on Class I rail mergers on March 17, 2000. On June 7, 2001, The Surface Transportation Board issued a new set of regulations governing Class I rail mergers that took effect on July 11, 2001.

     Although the acquisition market is competitive, the Company believes that there will continue to be opportunities to acquire rail properties in the United States and Canada from Class I railroads and from independent short-line and regional railroads. The Company also believes there may be additional acquisition opportunities in Australia, Canada, South America and other markets.

GROWTH STRATEGY

     The Company intends to continue to expand its business by:

. acquiring rail lines that are close to or contiguous with the Company’s existing regional rail systems to improve its asset utilization and reduce its operating costs;

. broadening its geographic presence by acquiring rail lines in new regions where the Company believes there are additional business development and acquisition opportunities;

. expanding its revenue base within each region it serves through focused marketing efforts and a high level of customer service; and

. improving its operating performance through the more efficient use of equipment and facilities and the reduction of overhead and operating expenses.

     Acquisition of and Investment in Rail Properties

     The Company has a disciplined acquisition and investment-driven strategy that focuses on both domestic and international opportunities. From 1985 to 1997, the Company acquired and integrated 12 acquisitions in the United States. From 1997 to 2000, the Company acquired or made investments in seven railroads internationally, including in South Australia (1997), Canada (1997), Mexico (1999), Western Australia (2000) and Bolivia (2000). On October 1, 2001, the Company acquired the South Buffalo and, on February 22, 2002, the Company acquired Emons.

The Company’s recent acquisitions and investments include:

. branch lines of U.S. and Canadian Class I railroads;

. rail lines of industrial companies, such as Bethlehem Steel and Broken Hill Proprietary Co. Ltd.;

. other regional railroads or short-line railroads; and

. the privatization of foreign government-owned rail systems, such as Westrail in Western Australia.

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     The Company seeks to expand its international and U.S. business through the selective acquisition of and investment in rail properties, both in new regions and in regions in which it currently operates. The Company’s fundamental acquisition strategy is to identify properties that have large industrial customers which will provide it with a stable revenue base and the potential to generate incremental revenues and additional customers upon implementation of a focused marketing plan. In new regions, the Company targets rail properties that have adequate size to establish a presence in the region, provide a platform for growth in the region, and attract qualified management. When acquiring rail properties in its existing regions, in addition to seeking properties with large industrial customers, the Company targets contiguous rail properties where it believes there are significant opportunities to realize operating efficiencies.

     In evaluating potential acquisitions and investments, the criteria the Company considers, among others, include:

. projected risk-adjusted return on investment;

. potential for additional revenue and service improvements;

. identifiable cost savings and synergies, such as productivity and asset utilization improvements, consolidation of equipment maintenance and operational improvements;

. diversification of the Company’s overall commodity and geographic mix;

. the size of the rail operations;

. opportunities for expansion;

. revenue stability; and

. connecting carriers.

     The Company also considers acquisition opportunities that have the potential to enable its railroads to provide better or more cost-effective service to major shippers or to increase and diversify the overall customer base of its railroads. The Company develops acquisition prospects through its relationships with Class I carriers and its reputation in the industry. The Company has acquired and integrated twenty one acquisitions of varying sizes and operating characteristics, including short-lines, Class I divestitures, government owned railroads, rail lines of industrial companies and an industrial switching company.

     The Company generally acquires rail properties through the purchase of stock or the purchase or lease of assets/concessions. Typically, the Company bids against other short-line and regional operators for available properties. The structure of each transaction is determined based upon economic and strategic considerations. In addition to the financial terms of the transaction, sellers consider more subjective criteria such as a prospective acquiror’s operating experience, its reputation among shippers and its ability to close a transaction and commence operations smoothly. The Company believe it has established an excellent record in each of these areas. In addition, by growing revenues on its acquired lines and providing improved service to shippers, the Company is often able to provide increased revenue to the Class I carriers that connect with its North American lines. Furthermore, the Company believes that there is a relatively small number of well capitalized operators currently bidding for properties in the international and U.S. rail markets. As a result, the Company believes that it is well positioned to capitalize on additional acquisition opportunities.

     Marketing

     The Company builds each regional railroad business on a base of major industrial customers, grows that base business through marketing efforts directed at its major customers, and creates additional revenues outside the base of major customers by attracting new customers and providing ancillary rail services. The Company believes that over the long term, the strategy of building its regions around a core of major industrial customers provides a stable revenue base and allows the Company to focus its efforts on additional growth opportunities within a region. Through implementation of its marketing strategy, the Company has increased the number of its customers so that, over time, its reliance on any one customer or commodity has been declining. The Company’s marketing strategy also seeks, whenever possible, to divert freight traffic from trucking companies to its railroads, as illustrated by the Company’s local stone shipments for a major customer in the State of Oregon where it moved traffic from road to rail to circumvent the congested I-5 corridor around Portland.

     Consistent with the Company’s decentralized management structure, its sales and marketing activity is coordinated in each region by a marketing manager. The marketing manager works closely with personnel of each of the Company’s railroads and with other department heads to develop marketing plans to increase shipments from existing customers and develop new business. The Company considers all of its employees to be customer service representatives and encourages them to initiate and maintain regular contact with shippers.

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     Because most of the traffic transported by the Company’s railroads in the United States and Canada is interchanged with Class I carriers, the Company’s marketing efforts in these areas are often aimed at enhancing its railroads’ relationships with these Class I carriers as well as shippers. The Company provides related rail services such as railcar leasing, railcar repair, switching, storage, weighing and blocking and bulk transfer, which enable Class I carriers and customers to move freight more easily and cost-effectively. For example, the Company supplies cars to its customers or its railroads when, among other things, a customer has a need which cannot be filled by cars supplied by Class I railroads or the Company has an opportunity to provide cars on a cost basis that both meets customer needs and improves the economics of a freight move to the Company. The Company actively manages its railcar and locomotive portfolio, buying, selling and leasing equipment to take advantage of changes in market value in conjunction with changes in the Company’s customer needs.

     Operations

     The Company focuses on lowering operating costs and improving asset efficiency to maximize its return on invested capital, and has historically been able to operate acquired rail lines more efficiently than the Class I railroads and governments from whom it acquired these properties. The Company typically achieves efficiencies through lowering administrative overhead, consolidating equipment and track maintenance contracts and selling unutilized assets. For example, in Australia, the Company improved the financial results of Australia Southern Railroad from an operating loss at the time of purchase in 1997 to an operating ratio of 81.1% in 1998, the first full year of the Company’s ownership.

     The Company intends to continue to improve the operating efficiency of its railroads by track rehabilitation, especially where maintenance has been deferred by the prior owner. Because of the importance of certain of the Company’s shippers to the economic stability and/or development of the regions where they are located, and because of the importance of certain of the Company’s railroads to the economic infrastructure of those regions, approximately $50.0 million in state and federal grants for track rehabilitation and service improvements have been invested in the Company’s North American rail properties since 1987.

MANAGEMENT

     The Company’s Chief Executive Officer, Chief Operating Officer, Chief Financial Officer and Executive Vice President — Corporate Development have responsibility for overall strategic and financial planning. The Chief Executive Officer oversees the Company’s global operations including its equity

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investments in Australia and South America, while the Chief Operating Officer manages operations in North America. The Company believes that through its decentralized management structure it has developed a culture that encourages employees to take initiative and responsibility which is rewarded through performance-based profit sharing and bonus programs.

RAILROAD OPERATIONS — NORTH AMERICA

     North American Customers

     The Company’s North American railroads currently serve over 680 customers. A large portion of the Company’s North American railroad operating revenue is attributable to customers operating in the electric utility, mineral and stone, paper, petroleum products, metals, farm and food products, lumber and forest products, and chemicals and plastics industries. As the Company acquires new North American railroad operations, the base of customers served continues to grow and diversify. The largest ten North American customers accounted for approximately 30%, 30% and 34% of the Company’s North American railroad revenues in 2001, 2000 and 1999, respectively. In 2001 and 2000, the Company’s largest North American customer was a coal-fired electricity generating plant owned by Dominion Resources, which accounted for approximately 7% and 6%, respectively, of the Company’s North American railroad revenues. In 1999, the Company’s largest North American customer was Commonwealth Edison, an electric utility, which accounted for approximately 15% of the Company’s North American railroad revenues (see Note 16 to Consolidated Financial Statements). The Company typically ships freight pursuant to transportation contracts among the Company, its connecting carriers and the shipper. These contracts are in accordance with industry norms and vary in duration from one to seven years.

     North American Railroad Commodities

     The Company’s North American railroads transport a wide variety of commodities for their customers. Some of the Company’s railroads have a diversified commodity mix while others transport one or two principal commodities. In 2001, coal, coke and ores and minerals and stone were the two largest commodity groups transported by the Company’s North American railroads, constituting 21.6% and 15.0%, respectively, of total North American revenues (see Item 7. of this Report under the heading “Results of Operations — Year Ended December 31, 2001 Compared to Year Ended December 31, 2000”), and 33.1% and 11.2%, respectively, of total North American carloads. The following table compares North American freight revenues, carloads and average freight revenues per carload for the years ended December 31, 2001 and 2000:

North American Freight Revenues and Carloads Comparison by Commodity Group
Years Ended December 31, 2001 and 2000
(dollars in thousands, except average per carload)

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     Coal, coke and ores consists primarily of shipments of coal to utilities and industrial customers.

     Pulp and paper consists primarily of inbound shipments of pulp and outbound shipments of kraft and fine papers.

     Minerals and stone consists primarily of cement, gravel and stone used in construction, and salt used in highway ice control.

     Metals consists primarily of scrap metal, finished steel products and coated pipe.

     Farm and food products consists primarily of sugar, molasses, rice and other grains and fertilizer.

     Petroleum products consists primarily of fuel oil and crude oil.

     Lumber and forest products consists primarily of finished lumber used in construction, particleboard used in furniture manufacturing, and wood chips and pulpwood used in paper manufacturing.

     Chemicals consists primarily of various chemicals used in manufacturing.

     Autos and auto parts consists primarily of finished automobiles and stamped auto parts.

     North American Railroad Employees

     As of December 31, 2001, the Company’s North American railroads had approximately 1,250 full-time employees. Of this total, approximately 560 are members of national labor organizations. The Company’s North American railroads have 14 contracts with these national labor organizations which have expiration dates ranging to 2005. The Company has also entered into collective bargaining agreements with an additional 58 employees who represent themselves, which have expiration dates ranging to 2004. The Company believes that its relationship with its employees is good.

RAILROAD OPERATIONS — AUSTRALIA (Equity Accounting)

     On December 16, 2000, the Company, through its recently formed joint venture, ARG, completed the acquisition of Westrail Freight from the government of Western Australia. ARG is a joint venture owned 50% by the Company and 50% by Wesfarmers Limited, a public corporation based in Perth, Western Australia. Westrail Freight is composed of the freight operations of the formerly state-owned railroad of Western Australia.

     To complete the acquisition, the Company contributed (1) its formerly wholly owned subsidiary, Australia Southern Railroad; (2) its 2.6% interest in the Asia Pacific Transport Consortium, a consortium selected to construct and operate the Alice Springs to Darwin railway line in the Northern Territory of Australia; and (3) $21.4 million in cash. The Company accounts for its 50% ownership in ARG under the equity method of accounting and therefore deconsolidated ASR from its consolidated financial statements as of December 17, 2000.

Australian Railroad Customers

     ARG currently serves over 50 customers. A large portion of ARG’s railroad operating revenue is attributable to customers operating in the grain, ores and minerals, and alumina industries. ARG’s largest ten customers accounted for

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approximately 66.6% of its revenues for the year ended December 31, 2001. ARG’s largest customer in South Australia and Western Australia, the Australian Wheat Board, accounted for 22.0% of its operating revenue for the year ended December 31, 2001. ARG typically ships freight under transportation contracts between ARG and the shipper. The terms of these contracts vary from customer to customer.

Australian Railroad Commodities

     ARG’s railroads transport a wide variety of commodities for its customers. For the year ended December 31, 2001, grain, other ores and minerals, iron ore, alumina and hook and pull (haulage) represented 30.2%, 23.4%, 12.5%, 9.3% and 6.4% of freight revenues, respectively, and 20.2%, 12.0%, 18.8%, 17.1% and 5.2% of ARG’s total carloads, respectively.

     The following table provides ARG’s freight revenues, carloads and average freight revenues per carload for the year ended December 31, 2001.

AUSTRALIAN RAILROAD GROUP REVENUES AND CARLOADS BY COMMODITY GROUP

Year Ended
December 31, 2001
(dollars in thousands, except average per carload)

Australian Railroad Employees

     As of December 31, 2001, ARG had approximately 1,093 full-time employees. Of this total, approximately 35% are members of labor unions. In South Australia, ARG has one collective bargaining agreement that expires in September 2004. In Western Australia, ARG is currently negotiating with its employees and union representatives to reach new agreements.

U.S. INDUSTRIAL SWITCHING OPERATIONS

     U.S. industrial switching operations generate non-freight revenues primarily by providing freight car switching and related rail services such as railcar leasing, railcar repair and storage to industrial companies with extensive railroad facilities within their complexes. The Company’s U.S. industrial switching operation serves 26 customers in 9 states. These

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customers are primarily in the chemicals, paper, grain, mining and power generation industries. The provision of the service generally involves providing a work force and locomotives at the customer’s facility and tailoring the service level to the switching requirements of the site. As of December 31, 2001, the Company’s U.S. industrial switching operations had approximately 236 employees. The Company believes that its relationship with its employees is good.

SAFETY

     The Company’s safety program involves all employees at all levels of the company. Safety focuses on the prevention of accidents/injuries, and the creation of a safety culture within the organization. The Senior Vice President of each region is accountable for the results of the program, and each region has an officer responsible for day-to-day program administration. Line supervisors have direct responsibility for the safety and training of their personnel.

     The Company maintains a corporate-wide safety policy facilitated by the Vice President and Chief Safety Officer. A Compliance Officer and a Safety Director are assigned line responsibilities and report to the Vice President and Chief Safety Officer. The Company’s safety program allows each of its subsidiaries the flexibility to develop safety rules and procedures based on local requirements or statutes. The Company works continuously to comply fully with all federal, state and local government regulations. Operating personnel are trained and certified in train operations, the transportation of hazardous materials, safety and operating rules, and governmental rules and regulations.

     The Company also participates in governmental and industry sponsored safety programs. For example, members of the Company’s management serve or have served on the Board of Directors of Operation Lifesaver (the national grade crossing awareness program), the New Program Committee of Operation Lifesaver, and the American Short Line & Regional Railroad Association Safety Committee.

     In addition, the Company has created two working safety groups. The first group, the Focus Team, consisting of the general managers and the Vice President and Chief Safety Officer, develops the corporate safety strategy and ensures consistency of implementation for policies within the organization. The second group, the GWI Team, includes safety representatives of each region, a general manager as team leader, and the Vice President and Chief Safety Officer as the facilitator working together to refine the Company’s safety program. Each team coordinates with the Company’s subsidiaries to ensure compliance with and implementation of all safety rules and regulations. The objective of both teams is to sponsor the Company’s initiatives to make it the safest carrier with regard to its employees, customers, assets, the public and the environment.

INSURANCE

     The Company has obtained insurance coverage for losses arising from personal injury and for property damage in the event of derailments or other accidents or occurrences. The liability policies have self-insured retentions ranging from $50,000 to $400,000 per occurrence. In addition, the Company maintains excess liability policies which provide supplemental coverage for losses in excess of primary policy limits. With respect to the transportation of hazardous commodities, the Company’s liability policy covers sudden releases of hazardous materials, including expenses related to evacuation. Personal injuries associated with grade crossing accidents are also covered under the Company’s liability policies. The Company also maintains property damage

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coverage, subject to a standard pollution sub-limit and self-insured retentions ranging from $10,000 to $250,000.

     Employees of the Company’s United States railroads are covered by the Federal Employers’ Liability Act (FELA), a fault-based system under which injuries and deaths of railroad employees are settled by negotiation or litigation based on the comparative negligence of the employee and the employer. FELA-related claims are covered under the Company’s liability insurance policies. Employees of the Company’s industrial switching business are covered under workers’ compensation policies.

     The Company believes its insurance coverage is adequate in light of its experience and the experience of the rail industry. However, there can be no assurance as to the adequacy, availability, or cost of insurance in the future.

COMPETITION

     In acquiring rail properties, the Company competes with other short line and regional railroad operators, some of which are larger and have greater financial resources than the Company. Competition for rail properties is based primarily upon price, operating history and financing capability. The Company believes its established reputation as a successful acquiror and operator of short line rail properties, in combination with its managerial and financial resources, effectively positions it to take advantage of acquisition opportunities.

     Each of the Company’s railroads is typically the only rail carrier directly serving its customers; however, the Company’s railroads compete directly with other modes of transportation, principally motor carriers and, to a lesser extent, ship and barge operators. The extent of this competition varies significantly among the Company’s railroads. Competition is based primarily upon the rate charged and the transit time required, as well as the quality and reliability of the service provided, for an origin-to-destination transportation service. To the extent other carriers are involved in transporting a shipment, the Company cannot control the cost and quality of such service. Cost reductions achieved by major rail carriers over the past several years have generally improved their ability to compete with alternate modes of transportation.

REGULATION

United States

     The Company’s U.S. railroads are subject to regulation by:

     . The Surface Transportation Board;

     . the Federal Railroad Administration;

     . state departments of transportation; and

     . some state and local regulatory agencies.

     The Surface Transportation Board is the successor to certain regulatory functions previously administered by the Interstate Commerce Commission. Established by the ICC Termination Act of 1995, The Surface Transportation Board has jurisdiction over, among other things, service levels and compensation of carriers for use of their railcars by other carriers. It also must authorize extension or abandonment of rail lines, the acquisition of rail lines, and consolidation, merger or acquisition of control of rail common carriers; in limited circumstances, it may condition such authorization upon the payment of severance benefits to affected employees. The Surface Transportation Board may review rail carrier pricing only in response to a complaint concerning rates charged for transportation where there is an absence of effective competition. The Federal Railroad Administration has jurisdiction over safety and railroad equipment standards and also assists in coordinating projects for railroad route simplification.

     In 1980, the Staggers Rail Act fundamentally changed U.S. federal regulatory policy by emphasizing the promotion of revenue adequacy, the opportunity to earn revenues sufficient to cover costs and attract capital and allowing competition to determine to a greater extent rail prices and route and service options. The ICC Termination Act of 1995 continues the trend towards limiting regulation of rail prices. As a result of these changes in legislative policy, the railroad industry’s rate structure has evolved from a system of interrelated prices that applied over different routes between the same points to a combination of market based prices that are now subject to limited regulatory constraints. While U.S. federal regulation of rail prices has been significantly curtailed, U.S. federal regulation of services continues to affect cost and competitiveness in the railroad industry.

Australia

     In Australia, regulation of rail is generally governed by State legislation and administered by State regulatory agencies. ARG’s assets are therefore subject to the regulatory regimes governing safety and access in each of Western Australia, South Australia, the Northern Territory, Victoria and New South Wales. In addition, with respect to access to rail infrastructure, ARG’s Australian assets, except its interest in the Alice Springs to Darwin railway line, which is subject only to an individual access regime, are subject to the national access regime under Part IIIA of the Trade Practices Act 1974 (Cwth), which is administered by the Australian Competition and Consumer Commission.

     There are a number of regulators who are responsible for the regulation of rail safety and accreditation. Similarly, there are a number of regulators who are responsible for administering the access regimes of each State. In addition, as noted above, the Australian Competition and Consumer Commission administers the national access regime under Part IIIA of the Trade Practices Act 1974 (Cwth). The State and the national access regimes operate concurrently until such time as a State regime is certified under Part IIIA of the Trade Practices Act 1974 (Cwth) as being “effective”. Such certification precludes the operation of Part IIIA with respect to the services provided via the infrastructure to which the relevant certified regime relates. Currently, the only regime which has been certified as effective is the access regime governing the Alice Springs to Darwin track.

     The State access regimes cover the intrastate rail network of the relevant State. The interstate network is governed by Part IIIA of the Trade Practices Act 1974 (Cwth). The Australian Rail Track Corporation, a corporation owned by the Commonwealth Government of Australia formed as a result of an agreement among the States and the Commonwealth, has submitted an undertaking to the Australian Competition and Consumer Commission which is intended to operate as the exclusive access regime for the interstate network while it is in force. On November 22, 2001, the Australian Competition and Consumer Commission issued a draft determination accepting the undertaking. A final decision is anticipated in March 2002, when it is expected that the undertaking will become effective as the governing access regime for the interstate network. ARG’s interstate network covered by the undertaking is the standard gauge tracks linking Wodonga (in Victoria), Melbourne (in Victoria), Adelaide (in South Australia), Broken Hill (in New South Wales), Tarcoola (in South Australia) and Kalgoorlie (in Western Australia). The interstate network is part of the larger standard gauge network linking all capital cities in Australia from Brisbane to Perth, as well as Broken Hill in New South Wales and Alice Springs in the Northern Territory. Those parts of this larger standard gauge network which are not covered by the interstate network are governed by the various State access regimes and the national access regime.

     The State rail access regimes and the interstate rail access regime are similar in that terms and conditions of access are in all cases determined through a process of negotiation and arbitration. However, there is variation across jurisdictions as to the independence of the arbitrator and the scope to appeal the arbitrator’s decisions. The regimes also differ in the pricing principles underpinning the negotiate-arbitrate approach to access charges. The Western Australian, South Australian, Victorian, New South Wales and interstate rail access regimes each adopt “floor/ceiling” limits to access pricing, although the cost and valuation basis for calculation of the limits can vary between jurisdictions. The access regime governing the Alice Springs to Darwin track adopts a benchmark approach against competing non-rail freight as well as a “floor/ceiling” limit for the determination of access charges.

Mexico

     In Mexico, railways are considered to be a priority area for the national economy, thus, they are considered to be national assets that may only be operated by private individuals or entities by means of a concession or authorization, depending on the activity, granted by the Federal Government through the Ministry of Communications and Transport. Since it is a priority area for the national economy, railroad services and their providers are subject to regulation by different branches of the executive branch of government. With respect to the rendering of the service itself, railroads are subject to Regulatory Law for Railroad Service and its Regulations, and the Ministry of Communications and Transport is the federal authority in charge of overseeing their compliance by all railroad service providers. The Ministry of Communications and Transport has jurisdiction over, among others:

     . the preparation and enforcement of policies and programs related to the railroad system;

     . the granting of the corresponding concessions;

     . regulating the concessions and resolving any issues regarding amendments or terminations to the concessions;

     . regulation of tariff application; and

     . if applicable, applying the corresponding sanctions when operators have not complied with the regulations or the terms of the
       corresponding concession.

     With respect to the service provider itself, it is subject to, in addition to the Regulatory Law for Railroad Service and its Regulations mentioned above, the Mexican Foreign Investments Law and the Federal Law of Economic Competition or Antitrust Law. The Mexican Foreign Investments Law regulates the percentage of foreign investment an entity may have when engaged in specific activities. For railroads, the Mexican Foreign Investments Law states that only Mexican nationals and entities incorporated under Mexican law may operate railroads in Mexico. However, with prior authorization by the Foreign Investments Commission, a foreign entity may operate railroads in Mexico even if its ownership of the railroads equity capital exceeds 49.0%. Since the concession is an exclusive right to use and operate railways, the Federal Law of Economic Competition and the National Commission for Economic Competition ascertain that in the process of rendering the railroad service, the service provider by means of predatory practices does not violate any of the fair competition practices and principles established within the Federal Law of Economic Competition, and thus competes fairly with its indirect competitors.

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ENVIRONMENTAL MATTERS

     The Company’s operations are subject to various federal, state and local laws and regulations relating to the protection of the environment, which have become increasingly stringent. In the United States, these environmental laws and regulations, which are implemented principally by the Environmental Protection Agency and comparable state agencies, govern the management of hazardous wastes, the discharge of pollutants into the air and into surface and underground waters, and the manufacture and disposal of certain substances. Similarly, in Canada, these functions are administered at the federal level by Environment Canada and the Department of Transport, and comparable agencies at the provincial level. In Mexico, these functions are administered at the federal level by the Ministry of Environment, Natural Resources and Fisheries and the Attorney General for Environmental Protection, and by comparable agencies at the state level. In Australia, these functions are administered primarily by the Department of Transport on a federal level and by the Environmental Protection Agency at the state level. There are no material environmental claims currently pending or, to the Company’s knowledge, threatened against the Company or any of its railroads. In addition, the Company believes that the operations of its railroads are in material compliance with current laws and regulations. The Company estimates that any expenses incurred in maintaining compliance with current laws and regulations will not have a material effect on the Company’s earnings or capital expenditures. However, there can be no assurance that the current regulatory requirements will not change, or that currently unforeseen environmental incidents will not occur, or that past non-compliance with environmental laws will not be discovered on the Company’s properties.

     In Mexico, the Company’s wholly-owned subsidiary, Compania de Ferrocarriles Chiapas-Mayab, S.A. de C.V., was awarded a 30-year concession to operate certain railways owned by the state-owned rail company Ferronales. Under the terms of the concession agreement, Ferronales remains responsible for remediation of all obligations, duty or liability arising from contamination or other environmental issues that occurred prior to the execution date of the concession agreement.

     The Commonwealth of Australia has acknowledged that certain portions of the leasehold and freehold land acquired under the sale and purchase agreement by ASR contains contamination arising from activities associated with previous operators. The Commonwealth has provided a release and indemnity to ASR from obligations, duty or liability arising from pre-existing contamination. The Commonwealth is required to remediate the relevant land to existing environmental standards and for the purpose for which the land was used at the date of the Sale and Purchase Agreement (or the date on which the land was last used).

RISK FACTORS OF FOREIGN OPERATIONS

     The Company’s operations and financial condition are subject to certain risks that could cause actual operating and financial results to differ

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materially from those expressed or forecast in the Company’s forward-looking statements. These risks include the fact that the Company’s 50/50 joint venture in Australia, ARG, and some of the Company’s significant subsidiaries transact business in foreign countries, namely in Australia, Canada, Mexico and Bolivia. In addition, the Company may consider acquisitions in other foreign countries in the future. The risks of doing business in foreign countries may include:

•		changes or greater volatility in the economies of those countries,
•		effects of currency exchange controls,
•		changes to the regulatory environment of those countries,
•		changes to the tax laws and regulations of those countries,
•		restrictions on the withdrawal of foreign investment and earnings,
•		the nationalization of the businesses that the Company operates,
•		the actual or perceived failure by the Company to fulfill commitments under concession agreements,
•		the potential instability of foreign governments, including from domestic insurgency movements, and
•		the challenge of managing a culturally and geographically diverse operation.

     The Company’s operations in foreign countries are also subject to economic uncertainties, including among others, risk of renegotiation or modification of existing agreements or arrangements with governmental authorities, exportation and transportation tariffs, foreign exchange restrictions and changes in taxation structure.

     ARG derives a significant portion of its rail freight revenues from shipments of grain. For example, for the year ended December 31, 2001, grain shipments in South Australia and Western Australia generated approximately 27.4% of ARG’s operating revenues. A decrease in grain shipments as a result of adverse weather or other negative agricultural conditions could have a material effect on the Company’s income from ARG and financial condition.

     Australia’s open access regime could lead to additional competition for ARG’s business, which could result in decreased revenues and profit margins. The legislative and regulatory framework in Australia allows third party rail operators to gain access to ARG’s railway infrastructure, and in turn governs ARG’s access to track owned by others. ARG currently operates on the Commonwealth-owned interstate network from Sydney, New South Wales and Melbourne, Victoria to Kalgoorlie, Western Australia and on State-owned track in New South Wales. Access charges are paid for access onto the track of other companies, and access charges under state and federal regimes continue to evolve because privatization of railways in Australia is recent. Where ARG pays access fees to others, if those fees are increased, ARG’s operating margins could be negatively affected. Conversely, if the federal government or respective state regulators determine that access fees charged to current or prospective third party rail freight operators by ARG in Western Australia or South Australia do not meet competitive standards, then ARG’s income from those fees could be negatively affected. When ARG operates over track networks owned by others, including Commonwealth-owned and State-owned networks, the owners of the network rather than the operators are responsible for scheduling the use of the tracks as well as for determining the amount and timing of the expenditures necessary to maintain the network in satisfactory condition. Therefore, in

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areas where ARG operates over tracks owned by others, it is subject to train scheduling set by the owners as well as the risk that the network is not adequately maintained. Either risk could affect ARG’s results of operations and financial condition.

     The results of operations of the Company’s foreign operations are reported in the local currency — the Australian dollar, the Canadian dollar and the Mexican peso — and then translated into U.S. dollars at the applicable exchange rates for inclusion in the Company’s financial statements. The functional currency of the Company’s Bolivian operations is the U.S. dollar. The exchange rates between some of these currencies and the U.S. dollar have fluctuated significantly in recent years and may continue to do so in the future. In addition, because the Company’s financial statements are stated in U.S. dollars, the translation effect of such fluctuations may affect the Company’s results of operations and financial position and may affect the comparability of the Company’s results between financial periods.

FORWARD-LOOKING STATEMENTS

     The information contained in this Report, including Management’s Discussion and Analysis (Part II, Item 7) contains forward-looking statements with the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, regarding future events and future performance of Genesee & Wyoming Inc. Words such as “anticipates,” “intends,” “plans,” “believes,” “seeks,” “estimates,” variations of these words and similar expressions are intended to identify these forward-looking statements. These statements are not guarantees of future performance and are subject to certain risks, uncertainties and assumptions that are difficult to forecast. Actual results may differ materially from those expressed or forecast in these forward-looking statements. These risks and uncertainties include those noted above under the caption “Risk Factors of Foreign Operations” as well as those noted in documents that the Company files from time to time with the Securities and Exchange Commission, such as Forms 10-K and 10-Q which contain additional important factors that could cause actual results to differ from current expectations and from the forward-looking statements contained herein.

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ITEM 2. PROPERTIES.

     The Company, through its subsidiaries and unconsolidated affiliates, currently has interests in twenty-eight railroads of which twenty-one are in the United States, three are in Canada, two are in Australia, one is in Mexico and one is in Bolivia. These rail properties typically consist of the track and the underlying land. Real estate adjacent to the railroad rights-of-way is generally retained by the seller, and the Company’s holdings of such property are not material. Similarly, the seller typically retains mineral rights and rights to grant fiber optic and other easements in the properties acquired by the Company’s railroads. Several of the Company’s railroads are operated under terms of leases or operating licenses in which the Company does not assume ownership of the track and the underlying land.

     The Company’s railroads operate over approximately 8,000 miles of track that is owned, jointly-owned or leased by the Company or its affiliates. The Company’s or its affiliates’ railroads also operate, through various trackage rights agreements, over approximately 2,700 miles of track that is owned or leased by others.

     The following table sets forth certain information as of March 24, 2002 with respect to the Company’s railroads:

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(1)		See Legend of Connecting Carriers following this table.
(2)		In addition, ALY operates by trackage rights over 3 miles of NS.
(3)		In addition, BR operates by trackage rights over 14 miles of BPRR.
(4)		Includes 92 miles under perpetual leases and 9 miles under a lease expiring in 2090. In addition, BPRR operates by trackage rights over 27 miles of CSX under an agreement expiring in 2018, and 83 miles of NS under an agreement expiring in 2027. The Company is seeking to rationalize approximately 58 miles of owned track that parallels track under the NS trackage rights agreement.
(5)		The operations of the GNWR have been realigned with those of RSR.
(6)		In addition, PS operates over 13 miles pursuant to an operating contract.
(7)		In addition, RSR has a haulage contract over 52 miles of CP.
(8)		In addition, IMR operates by trackage rights over 15 miles of IC, 9 miles of PPU and 5 miles of UP.
(9)		Includes 53 miles under lease expiring in 2015 with a 10-year renewal unless terminated by either party, 53 miles formerly under lease which was purchased in November, 1997, and is operated under a rail service easement, and 92 miles which was purchased in July, 1997. In addition, PNWR operates by trackage rights over 2 miles of UP and 4 miles of POTB.
(10)		All under lease expiring in 2013, with renewal options subject to both parties’ consent. In addition, WPRR operates over 41 miles of UP under a concurrent trackage rights agreement.
(11)		Includes 14 miles under a lease expiring in 2011. In addition, LDRR operates by trackage rights over 91 miles of UP under an agreement terminable by either party after 1997 and has a haulage contract with M.A. Patout & Sons over 4 miles of track.
(12)		All leased on a month-to-month basis under a Lease and Option to Purchase Agreement which commenced in 1989.
(13)		Includes 12.5 miles under lease expiring in 2009.
(14)		All under lease expiring in 2002.
(15)		All under lease expiring in 2002.
(16)		All under lease expiring in 2002.

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(17)		All under lease expiring in 2002.
(18)		Subsidiary of Emons Transportation Group, Inc., acquired February 22, 2002
(19)		All under lease expiring in 2017, with renewal options subject to both parties’ consent.
(20)		Consists of 275 miles which are owned and 18 which are under lease expiring in 2017, with renewal options subject to both parties’ consent. In addition, QGRR operates by trackage rights over 27 miles of CP.
(21)		All under a 30-year concession agreement operating on track structure which is owned by the state-owned rail company Ferronales. In addition, FCCM operates by trackage rights over 210 miles on Ferrosur (a recently privatized rail concession) and a government-owned line.
(22)		The track structure is owned by ARG. The land on which the track structure is built is leased from the State of South Australia for a term of 50 years with a conditional right of renewal for an additional 15 years. In addition, ASR operates over the 2,100 mile government-owned corridor between Melbourne and Perth under a trackage rights agreement.
(23)		ARG entered 49 year leases with the Government of Western Australia to operate the standard and narrow gauge freight railway infrastructure owned by the State. The lease obligations have been prepaid by ARG. ARG, in connection with the Westrail Freight acquisition, purchased certain rail yards, terminals, and other rail related maintenance facilities from the State.
(24)		All under a 40-year concession agreement operating on track structure which is owned by the state-owned rail company Red Ferroviario Oriental.

LEGEND OF CONNECTING CARRIERS

EQUIPMENT

     As of December 31, 2001, rolling stock of the Company’s North American operations consisted of 261 locomotives and 3,709 freight cars, some of which were owned and some of which were leased from third parties.

ITEM 3. LEGAL PROCEEDINGS.

The Company is a defendant in certain lawsuits resulting from railroad and industrial switching operations, one of which had included the commencement of a criminal investigation that was resolved in 2001 with no charges arising. Management believes that the Company has adequate provisions in the financial statements for any expected liabilities which may result from disposition of such lawsuits. While it is possible that some of the foregoing matters may be resolved at a cost greater than that provided for, it is the opinion of management that the ultimate liability, if any, will not be material to the Company’s results of operations or financial position.

On August 6, 1998, a lawsuit was commenced against the Company and its subsidiary, Illinois & Midland Railroad, Inc. (IMRR), by Commonwealth Edison Company (ComEd) in the Circuit Court of Cook County, Illinois. The suit alleges that IMRR breached certain provisions of a stock purchase agreement

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entered into by a prior unrelated owner of the IMRR rail line. The provisions allegedly pertain to limitations on rates received by IMRR and the unrelated predecessor for freight hauled for ComEd’s previously owned Powerton Plant. The suit seeks unspecified compensatory damages for alleged past rate overcharges. The Company believes the suit is without merit and is vigorously defending against the suit. However, an adverse outcome of this lawsuit could have a material adverse effect on the Company’s financial condition.

     The parent company of ComEd has sold certain of ComEd’s power facilities, one of which is the Powerton plant served by IMRR under the provisions of a 1987 Service Assurance Agreement (the SAA), entered into by a prior unrelated owner of the IMRR rail line. The SAA, which is not terminable except for failure to perform, provides that IMRR has exclusive access to provide rail service to the Powerton plant. On July 7, 2000, the Company filed an amended counterclaim against ComEd in the Cook County action. The counterclaim seeks a declaration of certain rights regarding the SAA and damages for ComEd’s failure to assign the SAA to the purchaser of the Powerton plant. The Company believes that its counterclaim against ComEd is well-founded and is pursuing it vigorously.

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ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.

     The information concerning matters submitted to a vote of security holders required by this item is incorporated herein by reference to the Definitive Information Statement (Schedule 14C) filed by the Company on November 26, 2001.

PART II

ITEM 5. MARKET FOR REGISTRANT’S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.

     On June 24, 1996, the Company’s Class A Common Stock began publicly trading and is quoted on the Nasdaq National Market. Its trading symbol is GNWR. The tables below show the range of high and low actual trade prices for the Company’s Class A Common Stock during each quarterly period of 2001, 2000 and 1999.

     The Company’s Class B Common Stock is not publicly traded.

     The Company did not pay cash dividends in 2001, 2000 or 1999. The Company does not intend to pay cash dividends for the foreseeable future and intends to retain earnings, if any, for future operation and expansion of the Company’s business. Any determination to pay dividends in the future will be at the discretion of the Company’s Board of Directors and will be dependent upon the Company’s results of operations, financial condition, contractual restrictions and other factors deemed relevant by the Board of Directors.

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     On March 22, 2002 there were 133 holders of record of the Company’s Class A Common Stock and 9 holders of record of the Company’s Class B Common Stock.

     During 2001, the Company issued the following securities which were not registered under the Securities Act of 1933, as amended (the Act). Each of such issuances was made by private offering in reliance on the exemption from the registration provisions of the Act provided by Section 4(2) of the Act. The facts relied upon to establish such exemption included the recipients’ representations as to their investment intent with respect to such Securities and restrictions on the transfer of such Securities imposed by the Company.

     (1)  On January 11, 2001, the Company issued to one of its directors, for no additional consideration, options under the Genesee & Wyoming Inc. 1996 Stock Option Plan for Outside Directors to purchase an aggregate of 4,500 shares of Class A Common Stock at an exercise price of $12.3333 per share. The shares issuable upon exercise of such options are the subject of a Registration Statement on Form S-8 under the Act.

     (2)  On April 6, 2001, the Company issued to an aggregate of 157 of its employees, for no additional consideration, options under the Genesee & Wyoming Inc. 1996 Stock Option Plan to purchase an aggregate of 257,335 shares of Class A Common Stock at an exercise price of $10.5833 per share, and 14,391 shares of Class A Common Stock at an exercise price of $11.6417 per share. The shares issuable upon exercise of such options are the subject of a Registration Statement on Form S-8 under the Act.

     (3)  On July 28, 2001, the Company issued to one of its directors, for no additional consideration, options under the Genesee & Wyoming Inc. Stock Option Plan for Outside Directors to purchase an aggregate of 2,250 shares of Class A Common Stock at an exercise price of $17.0333 per share. The shares issuable upon exercise of such options are the subject of a Registration Statement on Form S-8 under the Act.

     (4)  On July 30, 2001, the Company issued to one of its directors, for no additional consideration, options under the Genesee & Wyoming Inc. Stock Option Plan for Outside Directors to purchase an aggregate of 2,250 shares of Class A Common Stock at an exercise price of $17.6667 per share. The shares issuable upon exercise of such options are the subject of a Registration Statement on Form S-8 under the Act.

     (5)  On September 7, 2001, the Company issued to an aggregate of two of its employees, for no additional consideration, options under the Genesee & Wyoming Inc. 1996 Stock Option Plan to purchase an aggregate of 29,250 shares of Class A Common Stock at an exercise price of $14.7733 per share. The shares issuable upon exercise of such options are the subject of a Registration Statement on Form S-8 under the Act.

     (6)  On September 11, 2001, the Company issued to one of its employees, for no additional consideration, options under the Genesee & Wyoming Inc. 1996 Stock Option Plan to purchase 30,001 shares of Class A Common Stock at an exercise price of $14.5667 per share. The shares issuable upon exercise of such options are the subject of a Registration Statement on Form S-8 under the Act.

     (7) On October 26, 2001, the Company issued to two of its employees, in recognition of meritorious services rendered by them, 100 shares and 50 shares, respectively, of Class A Common Stock.

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ITEM 6. SELECTED FINANCIAL DATA.

     The following selected consolidated income statement data and selected consolidated balance sheet data of the Company as of and for the years ended December 31, 2001, 2000, 1999, 1998, and 1997, have been derived from the Company’s consolidated financial statements. All of the information should be read in conjunction with the consolidated financial statements and related notes included elsewhere in this Annual Report on Form 10-K. See also Item 7. of this Report.

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(1)  In 2001 and 2000, the Company recorded gains of $2.9 million and $10.1 million, respectively, resulting from the Company issuing shares of its Australian subsidiary at a price per share in excess of its book value investment in that subsidiary and the deconsolidation of that subsidiary. See Note 3 of the Notes to Consolidated Financial Statements for a complete description of this transaction and its related impacts.

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ITEM 7. MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS.

     The following discussion should be read in conjunction with the Consolidated Financial Statements and related notes included elsewhere in this Annual Report.

General

     The Company is a holding company whose subsidiaries and unconsolidated affiliates own and/or operate short line and regional freight railroads and provide related rail services in North America, South America and Australia. The Company, through its U.S. industrial switching subsidiary, also provides freight car switching and related services to United States industrial companies with extensive railroad facilities within their complexes. The Company generates revenues primarily from the movement of freight over track owned or operated by its railroads. The Company also generates non-freight revenues primarily by providing freight car switching and ancillary rail services.

     The Company’s operating expenses include wages and benefits, equipment rents (including car hire), purchased services, depreciation and amortization, diesel fuel, casualties and insurance, materials and other expenses. Car hire is a charge paid by a railroad to the owners of railcars used by that railroad in moving freight. Other expenses generally include property and other non-income taxes, professional services, communication and data processing costs, and general overhead expense.

     When comparing the Company’s results of operations from one reporting period to another, the following factors should be taken into consideration. The Company has historically experienced fluctuations in revenues and expenses such as one-time freight moves, customer plant expansions and shut-downs, railcar sales, accidents and derailments. In periods when these events occur, results of operations are not easily comparable to other periods. Also, the Company has completed a number of recent acquisitions. The Company completed the acquisition of South Buffalo Railway in the United States in October, 2001. The Company, through a 50% owned joint venture, completed an acquisition in Western Australia in December 2000, and through an investment in an unconsolidated affiliate, acquired an interest in a railroad in Bolivia in November 2000. Additionally, the Company completed two acquisitions, one in Canada and one in Mexico, in 1999. Because of variations in the structure, timing and size of these acquisitions and differences in economics among the Company’s railroads resulting from differences in the rates and other material terms established through negotiation, the Company’s results of operations in any reporting period may not be directly comparable to its results of operations in other reporting periods.

     The general downturn in economies in North America for 2001 has adversely affected the Company’s cyclical shipments of commodities such as paper products in Canada, chemicals in the United States, and cement in Mexico. However, shipments of other important commodities such as coal and salt are less affected by economic downturns and are more closely affected by the weather. The economic downturn has also impacted the Company’s customers and while a limited number of them have declared bankruptcy, their traffic volumes have remained largely unaffected and the impact on the collection of their receivables has not been significant to date.

     On February 14, 2002 and May 1, 2001, the Company announced three-for-two common stock splits in the form of 50% stock dividends distributed on March 14, 2002 to shareholders of record as of February 28, 2002, and on June 15, 2001 to shareholders of record as of May 31, 2001, respectively. All share, per share

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and par value amounts presented herein have been restated to reflect the retroactive effect of both of the stock splits.

Expansion of Operations

United States

     On February 22, 2002, the Company acquired Emons Transportation Group, Inc. (Emons) for approximately $20.0 million in cash, including transaction costs and net of cash received in the acquisition, and $11.0 million of debt assumed. The Company purchased all of the outstanding shares of Emons at $2.50 per share. The Company funded the acquisition through its $103.0 million revolving line of credit held under its primary credit agreement, all of which was available at the time of the purchase. Emons is a short line railroad holding company with operations over 340 miles of track in Maine, Vermont, Quebec and Pennsylvania.

     On October 1, 2001, the Company acquired all of the issued and outstanding shares of common stock of South Buffalo Railway (South Buffalo) from Bethlehem Steel Corp. (Bethlehem) for $33.1 million in cash, including transaction costs, and the assumption of certain liabilities of $5.6 million. At the closing, the Company acquired beneficial ownership of the shares and, having received the necessary approvals from The Surface Transportation Board on November 21, 2001, assumed actual ownership on December 6, 2001. The purchase price was allocated to current assets ($2.3 million), property and equipment ($17.6 million) and goodwill ($18.8 million) less assumed current liabilities ($2.4 million) and assumed long-term liabilities ($3.2 million). South Buffalo operates over 52 miles of owned track in Buffalo, New York. The purchase price has been reduced by a $407,000 estimated adjustment pursuant to the final determination of the net assets of South Buffalo on the sale date. This amount, together with another $300,000 related to pre-acquisition liabilities paid by the Company on Bethlehem’s behalf, are reflected in the December 31, 2001 balance sheet as receivables. Although Bethlehem filed for voluntary protection under U.S. bankruptcy laws on October 5, 2001, payment of this receivable could be funded from a $3.0 million escrow account held by an independent trustee to settle amounts due to the Company pursuant to the South Buffalo acquisition.

     As contemplated with the acquisition, the Company will close the former South Buffalo headquarters office in March 2002 and has implemented an early retirement program under which 28 South Buffalo employees terminated in December 2001. The aggregate $876,000 cost of these restructuring activities is considered a liability assumed in the acquisition, and therefore is included in goodwill. The majority of these costs were paid in 2001.

     The acquisition of South Buffalo triggered the right of The 1818 Fund III, L.P. (the Fund), a private equity fund managed by Brown Brothers Harriman & Co., to acquire an additional $5.0 million of the Company’s Series A Redeemable Convertible Preferred Stock (the Convertible Preferred), and the Fund exercised that right on December 11, 2001 (see Note 12 to Consolidated Financial Statements).

Australia

     On December 16, 2000, the Company, through its newly-formed joint venture, Australian Railroad Group Pty. Ltd. (ARG), completed the acquisition of Westrail Freight from the government of Western Australia for approximately $334.4 million U.S. dollars including working capital. ARG is a joint venture owned 50% by the Company and 50% by Wesfarmers Limited, a public corporation

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based in Perth, Western Australia. Westrail Freight was composed of the freight operations of the formerly state-owned railroad of Western Australia.

     To complete the acquisition, the Company contributed its formerly wholly-owned subsidiary, Australia Southern Railroad (ASR), to ARG along with the Company’s 2.6% interest in the Asia Pacific Transport Consortium (APTC) – a consortium selected to construct and operate the Alice Springs to Darwin railway line in the Northern Territory of Australia. Additionally, the Company contributed $21.4 million of cash to ARG (partially funded by a $20.0 million private placement of the Convertible Preferred with the Fund) while Wesfarmers contributed $64.2 million in cash, including $8.2 million which represents a long-term Australian dollar denominated non-interest bearing note to match a similar note due to the Company from ASR at the date of the transaction. ARG funded the remaining purchase price with proceeds from a its Australian bank credit facility.

     As a direct result of the ARG transaction, ASR stock options became immediately exercisable by key management of ASR and, as allowed under the provisions of the stock option plan, the option holders, in lieu of ASR stock, were paid an equivalent value in cash, resulting in a $4.0 million compensation charge to ASR earnings.

     The Company recognized a $10.1 million gain upon the issuance of ASR stock to Wesfarmers upon the formation of ARG as a result of such issuance being at a per share price in excess of the Company’s book value per share investment in ASR. Additionally, due to the deconsolidation of ASR, the Company recognized a $6.5 million deferred tax expense resulting from the financial reporting versus tax basis difference in the Company’s equity investment in ARG.

     On April 20, 2001, APTC completed the arrangement of debt and equity capital to finance a project to build, own and operate the Alice Springs to Darwin railway line in the Northern Territory of Australia. As previously arranged, upon APTC reaching financial closure, Wesfarmers contributed an additional $7.4 million into ARG and accordingly, the Company recorded an additional first quarter gain of $3.7 million related to the December, 2000 issuance of ARG stock to Wesfarmers. A related deferred income tax expense of $1.1 million was also recorded. In the second quarter of 2001, ARG paid the $7.4 million to its two shareholders, in equal amounts of $3.7 million each, as partial payment of each shareholder’s Australian dollar denominated non-interest bearing note which resulted in a $508,000 currency transaction loss.

     The combined gains totaling $13.8 million relating to the formation of ARG represented the difference between the recorded balance of the Company’s previously wholly owned investment in Australia, less investment amounts that the Company estimated would be reimbursed by ARG, and the value of those Australian operations when ARG was formed. In the fourth quarter of 2001, the Company, ARG and Wesfarmers reached agreement as to the level of acquisition-related costs to be reimbursed to both venture partners. Accordingly, in the fourth quarter of 2001, the Company recorded a $728,000 decrease to its previously recorded gains to reflect the lower than estimated reimbursed amount for acquisition-related costs.

     The Company accounts for its 50% ownership in ARG under the equity method of accounting and therefore deconsolidated ASR from its consolidated financial statements as of December 16, 2000. Prior to its deconsolidation, ASR accounted for $37.6 million and $4.0 million of operating revenue and income from operations (excluding the $4.0 option buyout charge), respectively, for 2000 and $43.2 million and $6.6 million, respectively, for 1999.

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Mexico

     In August 1999, the Company’s then wholly-owned subsidiary, Compania de Ferrocarriles Chiapas-Mayab, S.A. de C.V. (FCCM), was awarded a 30-year concession to operate certain railways owned by the state-owned Mexican rail company Ferronales. FCCM also acquired equipment and other assets. The aggregate purchase price, including acquisition costs, was approximately 297 million pesos, or approximately $31.5 million at then-current exchange rates. The purchase price included rolling stock, an advance payment on track improvements to be completed on the state-owned track property, an escrow payment, which was returned to the Company upon successful completion of the track improvements, and prepaid value-added taxes. A portion of the purchase price ($8.4 million) was also allocated to the 30-year operating license. As the track improvements were made, the related costs were reclassified into the property accounts as leasehold improvements and are now being amortized over the improvements’ estimated useful lives. Pursuant to the acquisition, employee termination payments of $1.0 million were made to former state employees and approximately 55 employees who the Company retained upon acquisition but terminated as part of its plan to reduce operating costs after September 30, 1999. All payments were made during the fourth quarter of 1999 and are considered a cost of the acquisition.

     On December 7, 2000, in conjunction with the refinancing of FCCM and its parent company, GW Servicios, S.A. de C.V. (Servicios) (see Note 9 to Consolidated Financial Statements), the International Finance Corporation (IFC) invested $1.9 million of equity for a 12.7% indirect interest in FCCM, through Servicios. The Company contributed an additional $13.1 million and maintains an 87.3% indirect ownership in FCCM. The Company funded $10.7 million of its new investment with borrowings under its amended credit facility, with the remaining investment funded by the conversion of intercompany advances into permanent capital. Along with its equity investment, IFC received a put option exercisable in 2005 to sell its equity stake back to the Company. The put price will be based on a multiple of earnings before interest, taxes, depreciation and amortization. The Company increases its minority interest expense in the event that the value of the put option exceeds the otherwise minority interest liability. Because the IFC equity stake can be put to the Company, the impact of selling the equity stake at a per share price below the Company’s book value per share investment was recorded directly to paid-in capital in 2000.

Canada

     On April 15, 1999, the Company acquired Rail-One Inc. (Rail-One) which has a 47.5% ownership interest in Genesee Rail-One Inc. (GRO), thereby increasing the Company’s ownership of GRO to 95% from the 47.5% acquired in 1997. GRO owns and operates two short line railroads in Canada. Under the terms of the purchase agreement, the Company converted outstanding notes receivable from Rail-One of $4.6 million into capital, committed to pay approximately $844,000 in cash to the sellers of Rail-One in installments over a four year period, and granted options to the sellers of Rail-One to purchase up to 180,000 shares of the Company’s Class A Common Stock at an exercise price of $3.83 per share. Exercise of the option is contingent on the Company’s recovery of its capital investment in GRO (after payoff of existing GRO debt) including debt assumed if the Company were to sell GRO, and upon certain GRO income performance measures which have not yet been met. The transaction was accounted for as a purchase and resulted in $2.8 million of initial goodwill which was being amortized over 15 years. The contingent purchase price will be recorded as a component of goodwill at the value of the options issued, if and when such options are exercisable. Effective with this agreement, the operating results of GRO were initially consolidated within the financial

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statements of the Company, with a 5% minority interest due to another GRO shareholder. During the second quarter of 2000, the Company purchased the remaining 5% minority interest in GRO with an initial cash payment of $240,000 and subsequent annual cash installments of $180,000 paid in 2001 and due in 2002. Prior to April 15, 1999, the Company accounted for its investment in GRO under the equity method and recorded an equity loss of $618,000 in 1999.

South America

     On November 5, 2000, the Company acquired an indirect 21.87% equity interest in Empresa Ferroviaria Oriental, S.A. (Oriental) increasing its stake in Oriental to 22.55% from its original indirect 0.68% interest acquired in September 1999. On July 24, 2001, the Company increased its indirect equity interest in Oriental to 22.89% with an additional investment of $246,000. Oriental is a railroad serving eastern Bolivia and connecting to railroads in Argentina and Brazil. The Company’s ownership interest is largely through a 90% owned holding company in Bolivia which also received $740,000 from the minority partner for investment into Oriental. The Company’s portion of the Oriental investment is composed of $6.9 million in cash, the assumption (via an unconsolidated subsidiary) of non-recourse debt of $10.8 million (90% of $12.0 million) at an adjustable interest rate dependent on operating results of Oriental, and a non-interest bearing contingent payment of $450,000 due in 2003 if certain financial results are achieved. The cash used by the Company to fund such investment was obtained from its existing revolving credit facility. Additionally, the Company received the right to collect dividends from Oriental related to its full year 2000 earnings. Such dividends of $617,000 were received in March 2001. The full value of the non-recourse debt of the Company’s unconsolidated subsidiary ($12.0 million as of December 31, 2001) bears interest, based on the availability of dividends received from Oriental, between a floor of 4% and a ceiling of 7.67%. The debt effectively bore interest of 6.12% throughout 2001 and is due in annual installments through 2003. Such installments and interest are primarily funded by dividends received from Oriental, with any shortages (which are expected for 2002 payments) to be funded by the Company and its partner. The Company accounts for its indirect interest in Oriental under the equity method of accounting.

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Results of Operations

Year Ended December 31, 2001 Compared to Year Ended December 31, 2000

Consolidated Operating Revenues

     Consolidated operating revenues (which exclude revenues from the Company’s equity investees) were $173.6 million in the year ended December 31, 2001 compared to $206.5 million in the year ended December 31, 2000, a net decrease of $33.0 million or 16.0%. The net decrease was attributable to a $37.6 million decrease due to the deconsolidation of Australian railroad operations as of December 16, 2000 and a $275,000 net decrease on existing North American railroad operations, offset by a $3.4 million increase in North American railroad revenues from the October 1, 2001 acquisition of South Buffalo, and a $1.5 million increase in industrial switching revenues.

     The following two sections provide information on railroad revenues for North America and industrial switching revenues in the United States.

North American Railroad Operating Revenues

     Operating revenues had a net increase of $3.1 million, or 2.0%, to $161.4 million in the year ended December 31, 2001 of which $129.9 million were freight revenues and $31.6 million were non-freight revenues. Operating revenues in the year ended December 31, 2000 were $158.3 million of which $126.4 million were freight revenues and $31.9 million were non-freight revenues. The net increase in operating revenue was attributable to a $3.5 million increase in freight revenues which consisted of $2.8 million in freight revenue from South Buffalo and a $643,000 increase on existing North American railroad operations, offset by a $362,000 decrease in non-freight revenues which consisted of $556,000 in non-freight revenue from South Buffalo offset by a $918,000 decrease on existing North American railroad operations. The following table compares North American freight revenues, carloads and average freight revenues per carload for the years ended December 31, 2001 and 2000:

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North American Freight Revenues and Carloads Comparison by Commodity Group
Years Ended December 31, 2001 and 2000
(dollars in thousands, except average per carload)